Gold rises toward $4,070 as falling US yields support Bullion
- Gold climbs as falling Treasury yields offset recovering US Dollar.
- US-Iran pause lifts sentiment, but Fed decision limits conviction.
- Failure near $4,070 risks pullback toward $4,050 support.
Gold price registers gains of 0.58% as Washington pauses attacks on Tehran, while US President Donald Trump opened the door for a resumption in negotiations. This, along with falling US Treasury yields, is a tailwind for Bullion prices with XAU/USD approaching $4,070.
XAU/USD holds gains on lower Treasury yields, Iran de-escalation hopes
Sentiment has improved during the day as news that a Chinese state-backed firm is producing chipmaking machines pushed US equities lower. In the precious metals segment, the yellow metal clings to gains, though XAU/USD is nearly back to the $4,050 area, which could open the door for further downside.
Geopolitics continued to play a role in the financial markets. Over the weekend, the White House paused attacks, adding to the market's positive mood. Also, US President Donald Trump said that Iran wants to meet, and that they’re meeting and added that “there’s a chance we can make a deal with Iran.”
Data in the US revealed that Durable Goods Orders in June improved but fell short of estimates. Nevertheless, traders' eyes are on the Federal Reserve's (Fed) monetary policy decision on Wednesday, followed by a busy economic docket on Thursday.
Money markets had priced in a 60% chance that the US central bank would keep rates unchanged and a slim 40% chance of a 25-basis-point rate hike, according to Prime Terminal data.
On Thursday, the US schedule will feature the release of Gross Domestic Product (GDP) figures for the second quarter, the final print of the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, and Initial Jobless Claims data.
In the meantime, Bullion prices recovered as US Treasury yields are edging lower. The US 10-year T-note falls 3.5 basis points (bps) to 4.645%. As of writing, the Greenback turned green as depicted by the measure of a basket of six currencies against the American currency, aka the US Dollar Index (DXY).
Oil prices fell 6% to hit a one-week low after the US and Iran paused strikes over the weekend following two weeks of attacks, raising hopes of a diplomatic solution that would de-escalate the conflict and allow shipping to resume in the Strait of Hormuz.
In June, China's net Gold imports through Hong Kong more than doubled from the same month last year but were down by over 5% from May, according to data from Hong Kong's Census and Statistics Department released on Monday.
XAU/USD technical outlook: Gold trades sideways despite posting gains
Gold’s price action projects that some consolidation lies ahead. Momentum, as measured by the Relative Strength Index (RSI), shows some mixed signs. The index remains bearish but closing into the 50 neutral level, which, once pierced, turns bullish.
For a bullish resumption, the XAU/USD must clear the $4,100 mark. Above lies the July 22 daily high at $4,165, which, once surpassed, clears the way toward the July 6 daily peak at $4,202. A breach of the latter exposes the 50-day Simple Moving Average (SMA) at $4,221.
On the downside, the first key support is the daily low of July 24 at $4,022. Beneath are the psychological $4,000 mark, followed by the June 17 daily low of $3,959.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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